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Photo by JOHN SULLIVAN
Plans call for the new Red Wings arena to be built in this largely vacant area north of downtown and bracketed by Woodward Avenue (left), Cass Avenue (right) and Temple Street (foreground).

Detroit City Council has approved expanding the Downtown Development Authority district for the construction of a $650 million development that would include a new arena for the Detroit Red Wings.

Following a nearly two-hour public comment period this morning, the council voted in favor of the expansion of DDA boundaries.

The project needed council approval to expand the current 615-acre DDA property tax capture district by about 40 blocks north of the Fisher Freeway between Grand River and Woodward avenues to encompass the arena district site.

Brian Holdwick, executive vice president for business development for the Detroit Economic Growth Corp., said at the meeting that the demolition of city-owned Joe Louis Arena, where the Red Wings have played since 1979, is expected to cost the state about $5 million.

The DEGC staffs the DDA under a contract with the city and owns some of the land in the proposed development area.

Dozens of people spoke during the public comment period against the planned development, with many decrying the use of tax dollars to fund part of the project.

The team is expected to move in 2017 or 2018 into the new $450 million arena at I-75 and Woodward Avenue, where there would also be another $200 million in private sector investment for residential, office and retail space around the arena.

Holdwick said following the meeting that the council is expected to take up a series of land transfers between the DDA, DEGC and Olympia Development of Michigan — the real estate arm of the Ilitch family, which owns the Red Wings — in February.

The council’s Legislative Policy Division will convene a task force to evaluate some of the community’s concerns expressed during the public comment period, Holdwick said.

Last Friday, the DDA approved a tweaked version of a concession management agreement that was unveiled in June. The DDA will own the new arena.

Olympia would operate the arena for 35 years, with 12 five-year renewal options. It will pay $2 million annually into a capital fund for repairs or improvements if it chooses to extend the 35-year lease. That’s in addition to a $500,000 annual repairs fund, funded equally by the DDA and Olympia beginning in 2017.

Funding

Many of the concerns voiced by the public at today’s meeting centered on tax dollars being used to fund a portion of the project.

The state’s Michigan Strategic Fund in July approved the sale of $450 million in 30-year tax-exempt private activity bonds to pay for construction of the arena itself. The other $200 million of the district’s $650 million overall cost would be private-sector investment in ancillary construction, such as residential, office and retail space around the arena.

The DDA district property tax capture and the diverted school tax would repay $261.5 million (58 percent) of the building’s construction bonds while Olympia would provide $188.4 million (42 percent), according to details provided by the state.

The state reimburses the schools for the diverted money, the DDA has said.

Wayne County last month approved an inter-governmental agreement with the DDA that allocates 1.5 mills of new county property tax capture in the expanded district to repayment of the arena bonds, said Bryce Kelley, director of the Wayne County Economic Development Growth Engine.

The DDA tax capture, on the books since the 1970s, can legally be used only for economic development within its district. It cannot be applied to the city’s debt, pensions or other bankruptcy-related issues.

The 650,000-square-foot hockey arena, which would be finished by 2017 or 2018, would seat 18,000 and have an attached 500-space parking garage, 10,000 square feet of retail space anchored by a Red Wings merchandise store, restaurants and other retail, according to the project plan.

No arena construction timeline has been disclosed. The facility is expected to take 24 to 30 months to build.

In addition to the boundary expansion, the DDA has requested City Council approval of land transfers to the DDA of parcels in the arena district owned by the city and its Economic Development Corp.

Those land transfers are expected to be considered in February, Holdwick said.

Olympia paid an estimated $50 million for half the land needed for the arena district, according to a Nov. 1 cost-benefit analysis provided to the city council by its Legislative Policy Division.

That analysis recommended the council approve the DDA requests after the final concession management agreement is provided to the council, certain income tax questions related to Olympia and Red Wings employees are answered and issues related to the future of Joe Louis Arena are considered.

A nonbinding memorandum of understanding involving the DDA, Olympia and Wayne County that outlines the project and its financing was approved in a unanimous voice vote by the DDA board in June.

The DDA isn’t part of the city’s bankruptcy filing and its finances are unaffected by the situation, according to Emergency Manager Kevyn Orr’s office. No general fund money is being used for the project.

Orr has previously spoken in favor of the project.

The DDA is unaffected by the city’s ongoing municipal bankruptcy. The authority is one of the city’s top 20 largest creditors.